How to Start a Corporation

As one of the oldest business entities in the United States, the corporation provides entrepreneurs firm structure and robust asset protection. The corporation has been the most reliable form of limited liability for more than 100 years. It’s also trusted by venture capitalists and those seeking a formal, well-maintained business entity. While the formation of new LLCs now tends to outpace the corporation, for those who don’t mind regularly scheduled meetings and a rigid structure, there’s nothing quite like adding the Inc on the end of your business name.

Incorporating Your Business

To start a corporation, you either hire an attorney or incorporation service, or you file the paperwork yourself in the state where you wish to form your corporation.

Hiring an Incorporation Service

The advantages of hiring an incorporation service are fairly obvious: you don’t have to worry and professionals will incorporate your business and provide you with the necessary supporting paperwork and services to run your corporation.

Decide Where to Form Your Corporation

While incorporating a business once required an act of congress, corporations are now formed at the state level, which means you’ll have to choose the state where you want to incorporate your business. Rule of thumb typically dictates that you form the corporation in the state where you live. This will likely simplify your life, even if you live in a tax-heavy Connecticut. If you try to pay less in tax by forming your corporation in a state like Delaware and you don’t live there, you’ll probably be required to register the corporation in your home state anyway come tax time as your state is going to come after its tax money regardless, negating any tax-savings schemes you’ve dreamt up.

The one circumstance in which you may be able to get away with registering in a state where you don’t live is if your business has no physical location, has no employees, and operates strictly online. Even in that case, you’ll probably want to consult a trusted attorney before making such a move so you don’t get slapped with any penalties.

Choose Your Company Name

Selecting a company name can be tricky, but one thing that may help narrow the possibilities is to search a domain registry and see if a corresponding URL is available. Having a matching company name and website URL is pretty savvy.

Another determining factor will be selecting a name that is available in your state. To see what’s available in your state, go to your state’s secretary of state website, find the “business services” section and perform a Business Name Search. There you’ll see what’s already been claimed.

Many states offer a name reservation service, we highly recommend NOT reserving a name, unless you know you won’t be forming your company for an extending period of time (months). Reserving a name typically only slows down the formation process.

Also, be aware that your corporation will need to have a corporate name ending like Inc, which fortunately, has a nice ring to it. For example, if you were to name your company Yellow Submarine, the legal company name would need to be something like Yellow Submarine Inc or Yellow Submarine Incorporated.

Select a Registered Agent

If you’re starting your first corporation, reading the term registered agent probably just melted your brain. Registered agent is a bland term for an extremely important piece of your corporation.

What is a registered agent?

A registered agent is an individual or business that serves as the official point of contact for your corporation. If your corporation gets sued, the lawsuit is delivered to your corporation’s registered agent. If the state needs to send a tax document to your corporation, it’s sent to your registered agent. If someone looks up your company in the state database, they’ll find the contact details for your registered agent.

What you need to know about registered agents:

  • All states require your corporation to appoint a registered agent.
  • You can be your own registered agent if you live in the state where you form your registered agent or you can hire a service.
    Most business owners are their own registered agent if they live in the state where their corporation is formed.
  • Most business owners are their own registered agent if they live in the state where their corporation is formed.
  • The downside of being your own registered agent is your contact details get plastered all over the web and you’ll get plenty of spam and junkmail. Plus, it’s easier for would be scammers to figure out what assets are you own.
  • If you don’t live in the state where you formed your corporation, you’ll have to hire a registered agent service.
    Advantages of Hiring a Registered Agent

Advantages of Hiring a Registered Agent

We’re breaking advantages of hiring a registered agent out into its own section, not because we think you should hire an additional service, but to better explain what registered agents do and provide a clear explanation of they’re really offering.
Vital Communications

  1. Vital Communications

    If you get sued, a registered agent will accept the service of process (lawsuit) and send you a digital notification. They should provide an online account through which you can access and store a variety of business documents and view everything you need to be aware of, including any upcoming maintenance or annual reports that need to be filed with your state. All this is a nice perk but not necessarily vital.

  2. Privacy

    This is where we think messaging gets a cloudy. If this is your first business, you’re probably pumped to let the world know you started a business, and you should be. Privacy is likely the last thing you’re concerned about. But you might want to be.

    Our digital age has brought with it a wild amount of new privacy concerns. When you hire a registered agent, they’ll list their address and contact information wherever they can on public record. We’re not talking about being a sketchy anonymous company, this is simply adding a layer of address security and protection of your personal information on the web.

Which Registered Agent Should You Hire?

Again, you do not need to hire a registered agent if you live in the state where you formed your corporation (registered agents have a physical residency requirement in every state). If you’ve hired an incorporation service to start your corporation, it’s very likely they’ll include registered agent service with your package. However, be aware that registered agent service renews annually and will likely cost around $100 to $300 a year.

Create Your Corporate Bylaws

While corporate bylaws don’t officially form your corporation, the document does lay out all the rules for how it will function, who is responsible for what, how ownership will work, how profits and losses will be split, pretty much everything. Most websites recommend doing this after you officially form your corporation, but it really makes sense to do this beforehand, as once you start the corporation, you already have planned out how it will function.

Obtaining Corporate Bylaws

For corporate bylaws, you can hire an attorney to draft one for you, but that’s definitely the most expensive route, and likely they’ll already be working off a template.

If you Google “corporate bylaws template,” you’ll see lots of websites advertising them, but most make you enter an email or do some weird 7-day free trial. It’s unclear whether any corporate bylaws on the web are better than another. But we recommend grabbing a template and tailoring it to your corporation. Again, if you’ve hired an incorporation service, they should provide you with a template in your package

What to Include in Your Corporate Bylaws?

You can, of course, draft corporate bylaws yourself, and they really don’t need to be fancy. Even something simple written on a napkin could work, but you’ll probably want to at least cover the basics. Try to include the following:

  • Where the corporation will be formed
  • Registered agent information
  • Duration of corporation
  • How the company will continue upon the death or prolonged absence of a shareholder
  • Corporation purpose
  • Board of directors names and addresses
  • Outline of how directors will appoint officers
  • Initial contributions
  • Outline of how profits and losses will be distributed
  • Outline the management responsibilities of the officers
  • Powers of officers
  • How and where company records will be kept
  • Outline how company bookkeeping will work
  • Transfer assignment outline
  • Dissolution outline

If you take the time to try to address all of the bulleted list in writing and have all members sign the document, you’ve just created a set of corporate bylaws.

Are Corporate Bylaws Required?

Most states do not require that you create a corporate bylaws. You do not file the bylaws with any government agency. However, you’d be risking a lot to start an corporation with other people and not have the bylaws signed by all the initial shareholders. If a legal dispute between shareholders occurs, the bylaws may be relied upon in court. Even if the language isn’t fancy, it’ll serve essentially as a contract between shareholders that they agree to the rules of the corporation.

Articles of Incorporation

The Articles of Incorporation is the document filed with the state that formally creates your corporation. Each state will have its own requirements. You’ll need to file this document in the state where you want to form the corporation.

Fortunately, you’ll be able to form your corporation online in almost every state. Just visit your local secretary of state’s website and find their business services section and go from there. The other commonality is that you’ll need to pay a filing fee. Depending on the state, this fee ranges from $10 to $800, but most are around the $100 range.

What Do I Need to Include in the Articles of Incorporation?

Generally, you’ll need to include the following in your Articles of Incorporation:

  • Corporation Name
  • Registered Agent and Registered Office Address
  • Principle Address
  • Mailing Address
  • Name and Address of the Directors
  • Purpose of Corporation
  • Name and Address of Organizer (person filing the articles–this person does not need to be an owner)

Obtain an EIN (Employer Identification Number)

The EIN is essentially your corporation’s social security number. This is the number that you’ll use when filing taxes, opening a bank account, hiring employees. It’s important.

Fortunately, you can get an EIN online for free on the IRS website if you have a Social Security Number. Simply follow the prompts on the IRS website after you’ve formed your corporation, and you’ll have one in about 15 minutes. That said, most incorporation services can obtain an EIN for you, and many include this service in their formation packages.

The process of obtaining an EIN is only slightly more complicated if you are a non-US resident without an SSN. In this case, you can still get an EIN for free, but you must file Form SS-4 by fax or mail. It’s a little more of a hassle, but non-US citizens can still get the EIN. You can also hire most LLC formation services to do this for you for an additional fee.

One final note about obtaining the EIN. Wait until your corporation has been approved by the state before doing so. If you try to get an EIN before your corporation is approved and the corporation is denied, you’re going to be in for a lot of headaches and confusion with the federal government. Just be patient, wait for your filing to come back from the state, then get your EIN.

Comply with All Necessary State and Municipal Business License Requirements

Not all states have general business licenses, but depending on the state you may be required to obtain various permits and licenses to operate your LLC. We recommend first checking out your local secretary of state’s website for specifics. The US SmallBusiness Administration also has a wide array of free resources.

Even if your state does not require any business license registrations, be aware that your local municipality may. They may even have their own sales tax rate. Before making your first sale, we highly recommend visiting your city or town’s website and figuring out if there are any additional requirements for your corporation.

Open a Bank Account for Your Corporation

Opening a bank account in the name of your corporation is the final step in starting an corporation. It may seem like it’s unimportant, but in reality, it’s absolutely crucial.

Opening a bank account in your corporation’s name is what will fully separate business assets from personal assets. This is extremely important because if the corporation gets sued and all its assets are in your personal bank account, a court may rule that there is no difference between you and your assets, which will allow a creditor to take everything from you. The solution to avoiding that is to keep a strict separation of personal and business assets. A business bank account is your primary piece of separation.

To open a corporate business bank account, you’ll need all of the following:

  • A copy of your articles of incorporation
  • A copy of your corporate bylaws
  • Your corporation’s EIN

Additionally, each bank may have its own requirements. We highly recommend calling your bank to understand its requirements before arriving in person. Most banks don’t open a lot of business checking accounts, so person in charge may be unfamiliar with its own requirements. Calling ahead will save you time and hassle.